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74 Foreign Aff. 22 (1995)
The Fall of the Dollar Order - The World the United States Is Losing

handle is hein.journals/fora74 and id is 614 raw text is: The Fall of the Dollar Order
The World the United States is Losing
Diane B. Kunz

A sailor embracing his girl in Times
Square amid cheering throngs may be the
dominant image of America's victory in
World War II. Today Times Square is
full again, but this time with foreign
tourists, who crowd into New York and
other American cities, eagerly hunting
bargains with their ever-strengthening
currencies. During the first quarter of
1995, the dollar plummeted to record lows
against the Japanese yen and German
mark. A cheaper dollar has brought
tourist income to the United States, set-
ting off a boom in the service sector. Yet
at the same time the declining dollar has
made American manufactures more
competitive against foreign goods, both
at home and abroad.
All is well, proclaim Clinton adminis-
tration officials. Treasury Secretary
Robert E. Rubin says that a strong dol-
lar is in the United States' national inter-
est but suggests no steps to realize his
incantation. Declaring himself helpless
against the foreign exchange market tur-
moil, President Bill Clinton asserts that

the ability of government to affect cur-
rencies in the short run may be limited.
In the end, the administration is in-
different to the slide of the dollar as the
premier reserve and trading currency.
American domestic prosperity during
the Cold War, as Clinton and Rubin
hardly seem to recognize, was based on a
triad of factors: American domestic eco-
nomic policy, American security policy,
and American foreign economic policy,
in particular the role of the dollar. The
synergy among these three elements has
brought prosperity at home and security
abroad. V-E Day marked the beginning
of the dollar era. If the administration
does not change its laissez-faire dollar
policy and cut the budget deficit, boost
savings, and take a hard line on trade,
the 5oth anniversary of V-E Day will
signify its collapse.
The role of the dollar as the pivotal inter-
national currency began after 1945.
American policymakers understood the

D i A N E B. KU NZ is Associate Professor of History at Yale University and is
completing a book on American foreign economic policy, which will be pub-
lished by The Free Press in 1996. A version of this essay appeared in The Sun-
day Times of London.


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